Securing Generics
Securing Generics

Securing Generics

January 7th, 2013 - The market for generic medicines is growing fast at a time when governments and insurers worldwide are looking to reduce healthcare spending.

Generic drugs are expected to generate revenue of $231 billion by 2017, according to a recent report from analysts Frost & Sullivan, up from $124 billion in 2010.

Indian companies have already taken the lead in the lower-cost drugs industry, producing a massive 80 percent of the world’s generic drugs by volume, says Emmanuel Petrequin, regional healthcare manager for SDV Asia Pacific. Most of these generics are exported to the U.S. while others reach Africa, Europe and Japan.

Some Indian pharmaceutical groups, such as Dr. Reddy’s and Aurobindo Pharma, sell lower-cost versions of medicines including the anticlotting drug Plavix directly into the U.S. and Europe. Others sell generic drugs to multinational pharmaceutical companies such as Switzerland’s Novartis, Pfizer of the U.S. and the U.K.’s GlaxoSmithKline to be distributed to consumers in the U.S. UK, Germany and the Netherlands, Petrequin says.

But while the Indian generics market has grown rapidly, the infrastructure and supply chain in the country often lags behind, Petrequin warns, creating risks for buyers and consumers and calling into question whether India will be able to maintain its leading position in the generics market.

“It’s a challenge to find a secure and reliable supply chain for pharmaceutical goods in India,” says Petrequin. The risks are increased because most foreign companies buying generic drugs in India opt for a contract that gives the seller control over transport, he says. “They don’t want the extra complication of taking responsibility for this area,” he says.

Security problems and temperature controls are just some of the risks to the supply chain in India, notes Petrequin. The medicines must be kept at below 25 degrees Celsius, requiring refrigerated containers in a country where temperatures can reach a sweltering 50 degrees. Security lapses could lead to thefts or tampering with the goods, he adds.

Petrequin advises buyers of generics from India to choose an Incoterm that gives them maximum control over the supply chain and transportation costs. Ideally, this would be an Ex Works Incoterm, giving the buyer control over the goods as soon as they leave the factory, he says.

Customs regulations in India, however, make the FOB or Free on Board Incoterm more practical, he notes. Under this contract, the seller arranges for transportation of the goods to the port of shipment and then the buyer arranges and pays for transportation to the final destination.

Unlike in many countries, it is also impossible for shippers to consolidate their goods in Indian ports with those of other exporters and then ship them to different destinations, adds Antoine Multon, sales director for SDV in Malaysia and former SDV business development manager for India. That’s because Indian regulations state that once sellers make an export declaration they cannot separate the cargo.

One way for buyers to consolidate cargo from several suppliers in India is to purchase the goods through a company registered in India, Multon says, although he warns this involves lengthy administrative procedures. Another solution is to create a subsidiary in a Special Economic Zone or SEZ. For example, Denmark’s Missionpharma, a company specializing in the supply of health kits and generics, created an Indian subsidiary in the SEZ of Mundra, a major port in northwestern India that is conveniently located near many pharmaceutical suppliers, Multon adds.

“This set-up allows Missionpharma to kit cargo from several Indian suppliers at a competitive cost, comply with Indian export regulations and still use the FOB Incoterm,” he says.

Another solution is for companies to consolidate the generics they buy in India in other countries. The IDA Foundation, for example, that delivers medicines and supplies to low- and medium-income countries, ships generics acquired in India to Singapore where they are included in kits destined for Papua New Guinea. In Singapore, SDV prepares four different types of kit containing between 20 and 70 different medicines and supplies, says Petrequin.

“India will suffer from its lack of a strong transport network and infrastructure,” he warns.

“Pharmaceutical clients could end up doubling their costs to ensure they have a secure transport network there.”

Key Figures
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    of growth in 2015 for Global Airfreight demand